an introduction to cost of delay
TRANSCRIPT
Why your current prioritisation is Apples v Pears An introduction to Cost of Delay Glenn Smith
About me • Techie at heart, started
out writing embedded code for Motorola.
• An consultant helping people create better products and services using agile and lean principles.
• Get a kick when people ‘get it’ and their product and service improves.
How do you prioritise now? In groups of 3-4 chat how it currently works for you. 10min.
• Is there a process • What works • What issues do you have?
Demand will ALWAYS outstrip supply
Starting projects can be hard
What does this all mean?
Cost of Delay can help us improve
“If you only quantify one thing, quantify the cost of delay”
Don Reinertsen
It allows us to consider
Cost of Delay
Financial Value
Information Value
Urgency / Time Criticality
So what do we really mean by cost of delay?
£ Benefits per month
Time
Delay Cost
Delayed entry not impacted peak
Late Entry
Reproduced from Black Swan Farming
£ Benefits per month
Time
Delay Cost
Short benefits horizon, peak impacted by delay
Late Entry
Reduced Peak
Reproduced from Black Swan Farming
£ Benefits per month
Time
Delay Cost
Long benefits horizon, peak impacted by delay
Late Entry
Reduced Peak
Reproduced from Black Swan Farming
How do you calculate the Value?
Protecting revenue
Avoiding Costs
Increases to revenue
Reduce Costs
Reproduced from Black Swan Farming
What about intangibles?
What about information value?
Accuracy over precision
Cost Savings Example • You have a call centre with 100 staff. The run rate of
each person is on average £30,000pa. • Project Optimise will streamline some of the services
allowing for a reduction in calls, allowing for a reduction in 5 less staff in the call centre.
• What is the Cost of Delay of not delivering Project Optimise?
£ Benefits per month
Time
Delay Cost
Delayed entry not impacted peak
Late Entry
Reproduced from Black Swan Farming
Increase Profit Example • You need a CRM to allow an increase of sales of
£100,000 a month. • Vendor A costs £50,000 and has a eight week
integration period. • Vendor B costs £100,000 and has a four week
integration period. • Assuming they both have the same functionality,
which vendor would you choose and why?
Lets try a more real world example Have your smartphones at the ready to do any research you think might help you to make assumptions
Local Alarms Ltd • You are a small building security alarm installers and
maintainers covering the local area. • Your accreditation of Acme Secure products runs out soon.
Acme are encouraging you to also certify for Acme Phantom!
• Phantom! is a larger system for larger properties, thus making it possible to charge more for install/service per hour and by it’s nature takes longer also, so margin and average invoices would be higher.
• If you do not renew your certification, Acme will stop sending leads to you and stop you validating warranties.
• You feel you can accommodate this additional work for Phantom! within the existing workforce.
Why use Cost of Delay? • Results in better Return on Investment through better
decision making. • Allows for an adult conversation about the benefits. • Surfaces assumptions, as each value in your
calculation will have an assumption. • Allows for risks in assumptions to be tested before
you start work. • Allows you to guide a conversation about
prioritisation, not drive it.
“To influence financial decisions, speak
the language of money” Don Reinertsen
How does Cost of Delay help with scheduling?
First In First Out Schedule Project CoD Duration A £1 10 B £5 2 C £10 8
Cost of Delay
Time
A
B
C
£170
Highest Cost of Delay Schedule Project CoD Duration A £1 10 B £5 2 C £10 8
Cost of Delay
Time
A
B
C
£50
Cost of Delay / Duration • It’s a form of Weighted Shortest Job First, with the
weight being Cost of Delay
Cost of Delay
Duration
= Priority Order
Cost of Delay/Duration Schedule Project CoD Duration CoD/Dur A £1 10 0.1 B £5 2 2.5 C £10 8 1.25
Cost of Delay
Time
A
B
C
£30
Health Warning • Duration is End to End. • Duration is dependant on team capability and capacity;
different team, different calculation.
Other uses of Cost of Delay
Drive optimisation of workflow
Manage queues
Drives smaller batches
Values excess capacity
“what matters is not the $ figures. What matters is that you have the conversations
about what is valuable.” Joshua Arnold
Questions?
Further Reading • The Principles of Product Development Flow, Don
Reinertsen http://amzn.to/1N9aki3
• How to Measure Anything: Finding the Value of Intangibles in Business by Douglas W. Hubbard http://amzn.to/1LaJcK
• Black Swan Farming Blog http://blackswanfarming.com/cost-of-delay/
• SAFe and Cost of Delay http://www.scaledagileframework.com/wsjf/
• Tootech Blog http://www.tootech.co.uk
Keep in touch… • Twitter: @gupster • Email: [email protected] • Blog: www.tootech.co.uk • LinkedIn: https://uk.linkedin.com/in/glennpsmith